CAKE - REAL TIME NOTES

CAKE just finished presenting at an investor conference….

 

 

CAKE notes:

 

Brands

  • Highly differentiated
  • Focused on guest, menu, strategic  marketing
  • Future development can deliver sustainable growth that can reach targets
  • Strong balance sheet

148 Cheesecake factory stores in operation

  • 18-45 yrs old, high income people are most frequent visitors

Grand Lux and Rock Sugar

  • Grand Lux is slightly above Cheesecake Factory
  • High volume
  • Moderate check average
  • Very encouraged by positive comp store sales in 1Q
  • Higher bar sales than Cheesecake Factory
  • Baked-to-order desserts

Rock Sugar

  • Menu items are freshly prepared and served Asian family style
  • On site pastry shop

Differentiators

  • Extensive menu
  • High quality ingredients
  • Portions
  • Dessert and beverages
  • Distinctive décor
  • Non-chain ambience
  • Atmosphere
  • Focus on service, hospitality
    • New restaurants are performing highly

 

Well positioned brand

  • Industry leading unit volumes with modest average guest check
  • One of America’s favorite upscale casual dining concepts
  • High guest satisfaction scores

Expansion goals

  • Pursuing “A” locations
  • Leveraging smaller format

2010

  • 3 new Cheesecake factory restaurants
  • Variety of sizes selected appropriately for each market
  • Seeing results from operations, marketing
  • Able to generate AUVs of $10m

EPS

  • Revenue growth
    • Increase SSS
    • Operating Margin expansion
      • Leverage comparable sales improvement
      • Cost savings
      • Capital allocation
        • Debt reduction
        • Share repurchase

8,000 sq ft

  • Smaller restaurant size is viable
    • Annapolis MD is testament to that format
    • 20% lower investment
    • Able to generate AUVs of $10m

 

Same-store sales

  • Traffic
    • Unemployment
    • Housing
    • Price
      • 1.4% of price at present
      • ~2% annual target
      • Menu Mix
        • Menu mix is still negative but hoping to return to flat once the economy rebounds
          • Less check management

 

Cost Savings

  • Expecting 8-10m of cost savings from initiatives implemented last year
    • Already realized 5m in 1Q
    • Leverage over fixed costs due to comps improving is built into guidance
    • 1% comp = $0.08 EPS

Goals

  • EPS growth of 20%-25% in 2010
  • Operating margins of 7.3% for 2010

CAKE - REAL TIME NOTES - CAKE EPS

 

CAKE - REAL TIME NOTES - unit econ CAKE

 

 

The company is on track to meet goals for 2010

 

Q&A

 

Q: How are you going to make additional cost savings?

A: Last year’s 27m was low hanging fruit.  The $10m for this year was from initiatives undertaken last year.  Any further savings would constitute upside to margins.  We increased margin by 250 bps in 1Q alone.

 

 

Q: Looking at 5 year revenue plan…implies new units not opening at lower levels, what do you think about the mix? Should we expect lower revenue from smaller boxes?

A: Annapolis and other small stores delivering greater sales than we thought possible.  Opens up greater geographies where restaurants can be placed.  There is another 7,200 sq ft format we haven’t opened yet and allows more units.  That unit can do $1,000 per sq ft. 

 

In terms of margin, we could reach 8% in 2Q but for the year we expect 7.2% and 7.5% margins.

 

 

Q: In terms of small plates, that exerts pressure on comps?

A: We’ve made small plates on menu.  Not something we’ve been focused on.  Small plates and snacks have given guests opportunity to spend less.  Of those that order off specials, their check average is slightly higher.  So they’re ordering more or getting dessert

 

 

Q: Your thoughts on closures and outlook for restaurants?

A: Surprised there weren’t more closures.  In future there will be winners and losers.  Companies that are taking care of customers coming in the door will do well, differentiated brand.  Can’t maximize profitability for today and give the future due attention to preserve long term success.

 

 

Q: Consolidation among existing brands or existing acquisitions?

A: A lot of transactions…it’s happened in other industries.  Consolidation hasn’t worked in restaurants, typically.  PE are going to be exercising exit strategies in future so you will see some go public and some consolidation.

 

 

Howard Penney

Managing Director


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